Warner Motors' Stock Is Trading at $20 a Share

question 16

Multiple Choice

Warner Motors' stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?

• A) The price of the call option will increase by $2.
• B) The price of the call option will increase by more than $2.
• C) The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.
• D) The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.

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Definitions:

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